Cognitive Bias Toward Loss Aversion

On the surface, it may seem redundant to think that underwriters are averse to loss. After all, our job is to make sure the policies we write for our respective companies earn more in premium than the claims and expense dollars that are paid. Yet, the cognitive bias of loss aversion is more nuanced, and recognizing the bias at work can help us avoid making ill-advised underwriting decisions. In the 1970s, researchers Daniel Kahneman and Amos Tversky began exploring how biases affected decision-making, and went on to formulate what is known as Prospect Theory.